BANKING ROYAL COMMISSION Ken Hayne
Kenneth Hayne, banking royal commissioner.

That the insurance industry section of the financial services royal commission would be a horror show has been long known, and so far it hasn’t disappointed. The entire industry — with the exception of QBE — has admitted to some form of misconduct. And yesterday the commission dwelt at length on the conduct of ClearView, whose cheery website promises “a new kind of insurance, investment and advice company” but which in fact operated a lot like the boilerrooms of decades of Hollywood movies: insurance was sold via fast-talking operators over the phone targeting low-income earners, indigenous people and others seen as easy marks, as the company racked up 300,000 — three hundred thousand — breaches of anti-hawking laws.

ClearView’s Greg Martin was back in the witness stand this morning, agreeing with pretty much every damning point put to him by counsel assisting as the company’s calls to luckless marks were played to him. Yesterday he talked of how insurance was a “grudge” purchase that consumers had to be pushed into making. One might venture that before the week is finished, insurance purchases might be a hell of a lot more grudging than they are already.

ClearView’s breaches were so egregious even toothless watchpoodle ASIC tiptoed into action last year, eventually forcing the company to repay $1.5 million to customers. Not that ASIC imposed an enforceable undertaking or took any regulatory action — it merely agreed that ClearView would refund some money, “engage an independent expert to provide independent assurance over the consumer remediation program” and stop selling insurance that way.

It also took ASIC nearly five years to intervene in conduct that began in 2013 and didn’t end until midway through 2017. ClearView isn’t a fly-by-night mob or industry tiddler – it’s ASX-listed and had acquired BUPA’s life arm a few years before the misconduct started. It should have been in ASIC’s sights. But in defence of the regulator, ASIC, already suffering from efficiency dividend cuts imposed by Labor, was gutted in the 2014 budget, losing over $100 million over forward estimates and more than one in ten staff. At the very time ClearView’s boilerroom was hitting the phones, ASIC was having to sack staff — and all the while it was under pressure to go after that other den of thieves, the financial planning industry.

The ASIC regulatory model bequeathed to us by the Wallis banking inquiry, in which a passive, complaints-based regulator takes years to swing into action even in the face of egregious misconduct is only ever going to have a chance of being effective if much heavier punishments are meted out. At the moment, companies know that even if they end up on ASIC’s radar, it will take years for the regulator to issue a press release announcing some compensation agreement or, at worst, an enforceable undertaking. If company executives knew that a possible jail sentence awaited them at the end of that process instead, that might act as a greater spur to ensure good corporate conduct.

One of the problems at ClearView was apparently that executives didn’t have much idea either of how the company’s remuneration scheme incentivised misconduct or of why they were breaking they law with their boilerroom. But is this media release, after nearly five years, any sort of incentive to correct that?

Lock some executives up for a couple of years, and you can bet they’d acquire a much sharper appreciation of the finer points of anti-hawking laws.

What do you make of the findings of the royal commission into the insurance industry? Write to [email protected] and let us know.